Personal Property Securities Leases And The Importance Of Registration
Summary: This article considers the effect of the Personal Property Securities ('PPS') reform on leasing and the transitional supply of goods. It demonstrates the fundamental importance of registration on the Personal Property and Securities Register ('PPSR').
The PPS Reform
Drawing on similar regimes in Canada and New Zealand the PPS Reform has heralded the creation of a new national online register of security interests over personal property. The Personal Property Securities Act 2009 (Cth) ('PPSA') and the PPSR commenced operation on the 30 January 2012, with the objective to remove any uncertainty in respect of interest over personal property.
While many individuals and businesses have simply ignored the pre-commencement alerts, registration on the PPSR is absolutely fundamental. The PPSR acts as a noticeboard for all previous and newly registered security interests as to remove any ambiguity. A security interest, as defined in section 12 of the PPSA is an interest in personal property that secures payment of an obligation.
As one of the most significant legislative reforms in over a decade, the PPSA affects almost all types of business. Accordingly, businesses that lease or supply will now need to register their interest over the personal property or more commonly known as, collateral.
Importance Of Registration
While the enforcement of the PPSA is yet to be tested, the importance of registration is clear. Businesses that overlook the PPSA and subsequently fail to register security interests on the PPSR potentially risk significant losses. Proportionately, businesses that take steps to register security interests over personal property will enjoy new protections.
It is important to be mindful that the PPSA and PPSR have completely changed priority rights in personal property upon enforcement. Accordingly, prior to the commencement of the PPSA a lessor of property would have been able to retain rights over leased equipment, due to a retention of title ('ROT') clause in the contract which meant that despite the lessee having possession of the goods, title over the goods would have not passed. This is simply no longer the case. Instead, where a lessor has failed to register their security interest over the leased goods and another secured party has registered their interest, that secured party will take priority upon enforcement.
The significance of registration is best illustrated in a scenario example. A lessor or owner of personal property or equipment enters into a contractual agreement with a lessee to lease that property. The lessor fails to register their security interest on the PPSR. The lessee decides to use those leased goods to secure finance with a financing company. The financing company registers an all-asset security interest over the leased goods on the PPSR. The lessee defaults on its repayments or becomes bankrupt. The financing company would take priority over the lessor because their interest was registered.
Under the PPSA, ROT lessors that become secured parties and register their interest will enjoy the benefit of a purchase money security interest ('PMSI'). A PMSI in compliance with PPSA requirements is a high status security interest that takes priority over all other and prior registered security interests over personal property. A PMSI also enjoys additional protection against a liquidator or trustee in bankruptcy, which was not previously possessed with ordinary ROI clauses prior to the commencement of the PPSR. It is therefore absolutely necessary that security interest in the lease of goods is registered on the PPSR.
Transitional Period And Its Effect On The Supply Of Goods
Upon the commencement of the PPSR, all previously registered security interests migrated to the PPSR. All unregistered security interests will be provided a twenty-four (24) month transitional period whereby all secured parties will enjoy temporary registration and perfection over the personal property. It is important to understand that all property previously unregistered must be registered on the PPSR prior to 30 January 2014.
The supply of goods to existing and new purchasers post PPSA commencement has been a matter of much confusion. Prior to 30 January 2012, a supplier who supplied goods before full payment was received, would have been able to rely on an ROI clause to hold title of the property until the full purchase price was paid by the purchaser. An ROI clause can no longer be relied upon even where the supply of goods is governed by a pre-commencement contract. Subsequently, the supply or new supply of goods after 30 January 2012 must be registered on the PPSR. The PPSR facilitates ongoing arrangements so once a supplier has registered their security interest over personal property on the PPSR, there will be no need to re-register each time a new supply is made to the same purchaser.
How Can Ramsden Lawyers Assist?
If you feel that you may be affected by this reform, Ramsden Lawyers can help. We can assist you by providing the following services so that you do not miss out on the PPSR protections:
- Review any business arrangements to determine the affect of PPSA;
- Advise on practical and legal implications of the PPSA;
- Advise on implementing existing and new procedures; and
- Assist on recovering personal property where necessary.
It is imperative to act now and register any security interests you may have.
"For more information and advice about this topic, please call our office to speak with one of our experts in this area".
By Shanan John Ramsden Lawyer and Managing Partner of Ramsden Lawyers.
27 Aug 2012